NEW DELHI | BENGALURU: Flipkart-owned Myntra on Tuesday pipped Snapdeal and the Future Group to acquire rival Jabong in a $70-million all-cash deal that creates India’s largest online fashion destination, reduces discounts and strengthens the Bengaluru-based company’s prospects of keeping Amazon at bay in this high-margin business.

The transaction caps months of seesawing talks between Global Fashion Group and Kinnevik, the owners of Jabong, and multiple Indian suitors. According to two persons familiar with the transaction, Myntra eventually offered to pay more than the $50 million that Snapdeal was willing to pay as well as the $35 million that Future Group was putting on the table.

A person close to Snapdeal said the company dropped out of the race as Jabong did not address issues that had arisen during due diligence. The Snapdeal spokesperson declined comment.

"The sale process was competitive with multiple parties participating until the end, and Flipkart was the chosen suitor as its proposal delivered best value for all stakeholders," a Jabong spokesperson said.

Myntra Chief Executive Officer Ananth Narayanan said the largest consolidation in India’s fashion ecommerce space will create an "800-pound gorilla" of fashion and lifestyle. "I don’t think this is consolidation in the traditional sense. I intend to run Myntra and Jabong as separate entities," Narayanan said in a telephonic interview with ET. He also assumes charges as CEO of Jabong.

Analysts say Jabong’s acquisition will be crucial for Flipkart in India’s dog-eat-dog ecommerce market with formidable players including Amazon and upcoming challengers in China’s Alibaba and Japan’s Rakuten. The size of the Indian online fashion segment is currently pegged at $2 billion and this is estimated to grow to $20 billion by 2020, surpassing consumer electronics as the single-largest online category.

"Fashion (especially women’s fashion) is a top category on ecommerce platforms in terms of transaction volume and growth, and also one of the most competitive due to lots of brands and manufacturers," said Sandy Shen, research director at Gartner.

"The acquisition of a fashion platform is a move by Flipkart to not only further penetrate the red-hot category but also maintain its leadership position in the market and keep Amazon at bay."

Another industry expert said the biggest benefit of the acquisition would be that it would allow both entities to quickly reduce the burn, or losses, on discounts. Jabong’s burn is expected to be slashed by more than half — from $4-5 million to $1-2 million in the coming months.

Myntra’s acquisition of Jabong was first reported on www.economictimes.com — on Tuesday morning.

Jabong has lost sheenOnce a bright star and a vanguard of online fashion shopping in India, Jabong lost sheen lately as its investors decided against aggressively injecting capital into a business that thrives on heavy discounting. For the fiscal year ended March 2016, Jabong’s total sales were Rs 940 crore with a negative EBITDA of Rs 415 crore.

Late last year, Jabong cofounders Arun Chandra Mohan and Praveen Sinha were let go from the company.

"It’s a good exit for Jabong," said Satish Meena, a research analyst at Forrester.

"Flipkart, on its part, wants to consolidate its hold in the fashion category. Amazon is picking up in fashion, but it will take some time even as it has closed the gap with Flipkart in electronics and smartphones."

A person directly involved in the deal described it as "a steal" for Flipkart, which had moved aggressively to close the transaction in the past one week. Negotiations were led by Flipkart’s corporate development head Nishant Verman, and the company’s founders Sachin Bansal and Binny Bansal were actively involved.

"The deal was a roller coaster, and there were several people interested in it. For all the offline players, it was their best chance to make a huge mark in the online space. For Snapdeal, which is not strong in fashion, this was a nobrainer. It could have acquired Jabong and become a credible competitor to Myntra. It could have raised an additional $200 million and created new hassles for Flipkart, which would have had to burn $70 million just to compete with a Snapdeal-owned Jabong," said the person directly involved in the transaction.

He added that while Flipkart’s main driver for the acquisition could have been 'block and tackle', the company could derive a lot of value from the purchase. "There are a lot of cost synergies at the back-end between the two companies," he said.

A person close to Snapdeal, however, had a different perspective. He said Snapdeal withdrew after Jabong’s owners refused to indemnify it against potential damages arising out of a 'financial impropriety' discovered during the due diligence process. He added that Jabong was understating its monthly burn rate for driving sales and was also violating the latest foreign direct investment guidelines by selling goods that it itself owned.

A Jabong spokesperson, however, denied this. "Jabong’s financial accounts and regulatory structure are audited on a quarterly basis by a Big Four accounting firm to public company standards. The company has always maintained full compliance with all applicable laws and transparency of information," said the spokesperson.

Sponsored Stories

Subscribe to our Newsletters

The move is expected to give Domino's an edge over rival pizza brands and QSR chains, but some experts warned that it may prove to be a tough promise to live up to and raised concern that it would put unnecessary pressure on delivery boys.